e-Invoicing for Real Estate Businesses in KSA

Real estate means buying and selling land and buildings, including any permanent additions, such as houses and other buildings. The real estate business in Saudi Arabia is segmented into residential estate and commercial real estate. Residential real estate includes apartments, and villas, whereas commercial real estate includes offices, retail, hospitality, etc.

The Vale Added Tax (VAT) treatment of real estate transactions in KSA can be complex, particularly when purchased using third-party finance. Also, the VAT treatment and the corresponding obligations on a seller, purchaser and financier will depend on the exact nature of the agreement.

Also, Saudi plans to digitise the business operations in the country and move towards a paperless economy. Accordingly, it planned to implement e-invoicing in two phases through Zakat, Tax and Customs Authority (ZATCA). It implemented phase 1 of e-invoicing in Saudi Arabia on 4th December 2021. 

In continuation, ZATCA announced the waves under phase 2 of Saudi e-invoicing as follows:

1. Wave 1 under phase 2: VAT-registered businesses with more than SAR 3 billion turnover in 2021 fall under wave 1 w.e.f 1st January 2023.
2. Wave 2 under phase 2: Businesses registered under KSA VAT whose turnover is more than SAR 500 million in 2021 fall under wave 2 w.e.f 1st July 2023.

Hence, all e-invoicing applicable businesses in Saudi Arabia must gear up and integrate their ERP/ POS/billing systems with ZATCA. Let’s see how e-invoicing impacts the real estate businesses in Saudi Arabia.

VAT treatment for real estate transactions in KSA

The sale of real estate attracts 15% VAT when the seller is in the real estate business. However, if the buyer provides the first home certificate to the seller, he can get a VAT exemption on a sale value of up to SAR 8,50,000. 

Also, the below table explains the VAT on rental of real estate:

Invoicing in case of real estate transactions

Real estate businesses can check the following points when raising invoices:

• The business must assess whether the transaction falls under VAT exemption or not and then raise invoices accordingly.
• If VAT applies to certain transactions, the supplier must issue a tax invoice.
• In the case of renting multiple properties, the lessor must raise separate tax invoices.

Also, the tax invoice must mention the invoice date, VAT registration number, invoice amount, VAT rate, and VAT amount.

Specific points to keep in mind while generating e-invoices for real estate transactions

• It is recommended to generate e-invoices even for VAT-exempted transactions as voluntary compliance. However, businesses should check with ZATCA before proceeding to integration.
• They must generate e-invoices for retention advances.
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How can real estate businesses implement e-invoicing in Saudi?

Under phase 2 of Saudi e-invoicing, the real estate businesses must integrate their POS/ accounting systems with the ZATCA’s system for ‘Clearance and Reporting’ of tax invoices and simplified tax invoices and related Credit and Debit Notes (CDNs).

Real estate businesses must perform Business Impact Analysis (BIA) to understand the 

• Infrastructure requirements
• Mode of e-invoicing integration
• Required technical capabilities
• Changes to invoicing process
• Archival requirements under Saudi laws
• Changes to the VAT return filing process

The real estate business shall be vigilant enough to understand the e-invoicing and comply with the requirement specified by ZATCA. Hence businesses must integrate with ZATCA to run the business smoothly. Opting for readily adaptable cloud solutions such as ClearTax to seamlessly integrate with ZATCA and implement phase 2 of e-invoicing in Saudi Arabia is recommended.